<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Republicans are planning to demand major spending cuts next year before they would agree to raise the amount of federal debt that can be issued, setting up a clash between the Obama administration and a Congress stocked with lawmakers who campaigned as deficit hawks.

The U.S. can't accrue debt above a certain ceiling set by lawmakers. In the most extreme scenario, the government would default on certain debts if the cap doesn't move.

Republican lawmakers, including South Carolina Sen. Jim DeMint, and congressional aides have said major spending cuts are the primary demand they will make going into the discussions over whether to raise the limit.

It isn't clear whether the White House would agree to significant cuts so quickly, though, and Obama administration officials could try to portray the GOP as playing political games with the country's ability to borrow.

The U.S. currently has $13.7 trillion of debt outstanding, just shy of the $14.3 trillion limit Congress set in February. Barring big changes in federal spending, taxes or the economy, the government is expected to hit the ceiling by May, and administration officials have already said it will have to be raised by then.

"Congress has never failed to increase the debt limit when necessary, and we are confident Congress will act in 2011 to ensure that the full faith and credit of the United States is protected," Treasury Department spokesman Steven Adamske said.

Raising the debt ceiling won't be easy in Washington's new political environment, with dozens of new Republicans elected to Congress on pledges to crack down on spending and shrink the debt. Many tea-party backed candidates, such as Mike Lee, who on Tuesday won a U.S. Senate seat in Utah, have suggested they would vote against raising the debt ceiling.

This tension is likely to be a centerpiece of Democrats' clash with the newly empowered GOP over taxes, spending and deficit-reduction policies. The issue could come up as President Barack Obama meets next week in Asia with other world leaders; some of the biggest investors in U.S. debt are other governments.

Federal debt has grown rapidly during the past decade, in part because of the costs of two wars and a deep recession. In early 2002, the cap was roughly $6 trillion and it has more than doubled since then. In February, the House agreed to increase the ceiling by a 217-212 vote, with all Republicans and 37 Democrats voting against it.

The U.S. has never defaulted on its debt. Economists have argued that doing so would have a destabilizing effect on global markets.

"It would mean essentially our government would become a business that can't pay its bills, and eventually people would stop doing business with it," said Phillip Swagel, a visiting professor at Georgetown University who was a top Treasury official during the George W. Bush administration.

Top Republicans, such as Senate Minority Leader Mitch McConnell of Kentucky and Rep. John Boehner of Ohio, who is expected to become Speaker of the House, so far haven't disclosed what they might demand from the White House in exchange for delivering the votes to raise the debt ceiling.

"We're discussing various things that might accompany the decision to raise the debt ceiling," Mr. McConnell said in an interview. Mr. Boehner told reporters earlier this week that it was an issue lawmakers would discuss in coming months.

In an interview, Senator Mitch McConnell says President Obama called him twice since Tuesday's election to discuss the way forward. But McConnell insists that Americans voters asked for a course correction and President Obama should listen to them.

President Barack Obama suggested in a news conference this week that he would oppose cuts in areas such as education or research and development.

Several Republicans have said they would push to scrap a procedural move that makes it easier to raise the ceiling without a specific vote. When the administration first asked to raise the ceiling in 2009, Treasury officials drafted backup plans in case lawmakers didn't act quickly enough, people familiar with the matter said.

These options remain available, but it isn't clear how much time they might buy. The administration also could push to raise the ceiling during the lame-duck session of Congress before Republicans take control of the House in January.

The U.S. has come close to defaulting at least three times in the past 20 years, forcing the Treasury to invent ways to temporarily borrow money to cover funding needs.

During the Clinton administration, the government actually hit the debt ceiling during a standoff between Treasury Secretary Robert Rubin and GOP House Speaker Newt Gingrich. Mr. Rubin successfully avoided default by borrowing money from at least two federal pension funds.

Eventually, the debt ceiling was raised, but only after a brief government shutdown and warnings from the Clinton administration that the government might temporarily stop mailing Social Security checks.

On separate occasions in 2002 and 2003, the Bush administration avoided hitting the debt ceiling by suspending investments in a pension plan for federal employees, among other things.